IN THE NORDICS, A CASH-FREE SOCIETY LOOMS • BEYOND DEMONETIZATION

LOVE IN THE TIME OF PCI MANDATES • PAYBACK PAY FUELS GERMAN PAYMENT INNOVATION

MILLENNIAL PAY • CARBON'S FOOTPRINT EXPANDS TO ISRAEL paybook

Presented by Vol. VI • July 2017

Sweden 98% Cashless Rate In Sweden, cashless payments are so ubiquitous that consumers even use cards to buy a pack of gum on the street.

Norway 95% Cashless Rate One of Norway’s leading financial confederations has said the country should be cashless by 2020.

Denmark 94% Cashless Rate In Denmark, nearly 40% of the population uses Danske 's MobilePay, which allows money transfers between people, as well as purchases in stores or online.

India United States % Cashless Rate 80% Cashless Rate 32 Going cashless is a challenge in The U.S. trails Scandinavian India, where high taxation rates countries in its cashless adoption currently make it more profitable to rate, due in large part to having a Germany pay with paper—proving the biggest deterrent to cracking open the population 33 times bigger than % Sweden, while also being far more 76 Cashless Rate parallel economy. diverse than the Nordic countries. Companies like PAYBACK PAY, facilitating mobile-based payments, may be ushering in a new cashless age in Germany. This shift in payments is happening right as has entered Germany earlier this year.

The Cash-free World Scandinavia is phasing out notes and coins at such a rate that it’s not a question of if the region will go cashless—but when.

In the mid-17th century, the Swedish Empire, a major The region’s pole position in the race to cashless is rooted power in Europe, experienced sweeping changes to its in a culture of payment efficiency. Already among the top economy. One of those changes, in 1661, was becoming the users of payment cards worldwide, Nordic countries opt first European country to introduce paper money—as an for plastic (with a rising adoption of mobile technology) alternative to copper coins that, due to their low intrinsic for greater convenience and cost-effectiveness compared value, were rather large and inconvenient to carry. to cash. The ability to build up rewards and loyalty points, minus the burdensome ritual of withdrawing cash Now, more than 350 years later, Sweden is on the verge of (sometimes with fees) and handling loose change, has becoming one of the first countries to go cashless. And made the decision rather easy for payment progressives they’re awfully close—according to Riksbank, Sweden’s across Scandinavia. central bank, cash transactions amounted to barely 2% of the country’s total payments in 2016. “We don’t have cash in our wallets anymore,” says Pal Fredriksen, Director of Product Management Nordic & And it’s not just Sweden. The Nordics as a whole— Baltic at Verifone. “Even a pack of gum, we will pay for it Denmark, Norway, Finland, and Iceland included—are with a .” at the global forefront of the cashless revolution. Each country is making strides to go cashless, whether through The credit card itself has advanced, now with NFC/CTLS startups, ceasing printing of new bills, technology, and major Scandinavian retailers like IKEA are or adopting cryptocurrency like Bitcoin. The Danish already accepting tap-and-go payments. It’s projected that government, in fact, has set a target deadline of 2030 to be 40% of cards in Europe will be contactless by 2020. completely rid of paper money.

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paybook • vol. VI • July 2017 Beyond Demonetization

The demonetization of Indian currency attempted to address two issues plaguing the country: a dependence on cash and the parallel economy. It was a bold step with good intentions, but can India fully free themselves from a cash-based society?

In November 2016, the Indian government declared the The Indian government realizes that, in order for it to use of all INR 500 and INR 1,000 banknotes invalid, and drive digital payments, reduce cash dependence, and announced the issuance of new INR 500 and INR 2,000 crack down on the parallel economy, initiatives must be banknotes to replace the discontinued bills. Citizens were put in place, pushing to install payment acceptance left with no other option but to exchange their now invalid devices. Banks, in turn, will have to persuade consumers banknotes for new bills, and, in doing so, they needed and merchants with value propositions that go beyond to open a bank account. Making sure all Indians have convenience, such as consumer rewards, lower merchant bank accounts was one giant step toward making money discount rates, and to data that can be used by exchanges trackable and quelling the parallel economy merchants to drive loyalty programs. of non-accountable, cash-based payments—thereby reducing corruption and encouraging economic growth. Beyond that, in order to achieve a cashless (or reduced cash) society, merchants must see value in the seamless However, the journey to a cashless economy is far from integration of their billing systems, as well as security, over. access to financing of receivables, and the ability to deliver deferred payment solutions—propositions that help them “To eliminate cash or to encourage the usage of digital grow their businesses. payments, merchants must see the value in a cashless economy,” says Vinayak Prasad, Verifone’s Head of India “India has been known to leapfrog and adopt new and Subcontinent Product Sales. technologies and processes in the past,” says Prasad. “It went from having only a few million fixed- phones Going cashless is a challenge in India, where high taxation to over one billion mobile phones in less than 15 years. rates currently make it more profitable to pay with paper— Similarly, the fact that we have only one proving the biggest deterrent to cracking open the parallel per thousand in India allows us the possibility to leapfrog economy. It is one of the few larger global economies still beyond cards faster than anywhere else in the world. There highly dependent on cash, which reduces the country’s is no legacy that we have to deal with.” ability to invest in economic growth; as such, India has been seeking a solution to this perennial problem. And India is already EMV chip and PIN-compliant for card- while India’s dependence on cash has somewhat reduced, present transactions, and all card-not-present transactions from more than 90% in 2005 to slightly below 80% in 2015, require two-factor authentication (2FA). India is the first there’s still room for major improvement. For example, country in the world to move to 2FA for every transaction, despite increased corporatization of Indian retail, cash is and it is also the first to implement Aadhaar, a biometric- still the preferred payment method of large vendor chains. based transaction authentication.

“Over the past few years,” Prasad explains, “the country has There are new methods of accepting payments as well, aggressively targeted the unbanked with bank enrollment including digital wallets such as and Freecharge, programs, and today, about 600 million Indians have which are similar to the digital payment revolution in access to bank accounts. More importantly, each of these China with Alipay. These new payment methods are forcing customers also has a .” traditional players to reduce merchant discount rates. The monopoly of Visa and MasterCard is being challenged by There’s only one payment terminal per thousand people in local schemes—NPCI and RuPay. India. Comparatively, Brazil and Russia have approximately 25 and 10 terminals per thousand, respectively, and most India still has a long way to go before achieving its vision Southeast Asian countries have about 20 terminals per of a cashless society, but with the new advancements in thousand. So, while the general population in India has payment methods and India’s history of surpassing others access to cards for making payments, the acceptance in terms of technology adoption, it might not be long before infrastructure has just started to bloom. India goes from lagging behind to leading the way. n

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paybook • vol. VI • July 2017 PAYBACK PAY Fuels German Payment Innovation

shift in payments is occurring right now in There was just one small problem. In Germany, the direct Germany, which may result in the obsolescence debit system does not guarantee payment, and with this of cash and cards for a majority of the country. In gradual shift away from cash, merchants would have been Aorder to understand why this is happening, we first need to forced to take on more and more risk—if it turned out the understand the German payment landscape. customer couldn’t pay, the merchant would have to eat the cost. First, there’s no in Germany and NFC capabilities are still very rare. The Germans have been craving a mobile Enter Paymorrow, recently acquired by Verifone. What we payment method. were able to bring to the table was the ability to guarantee payment to the merchant. The process works like this: Second, for many years, 50% of Germans carried around a plastic PAYBACK card—essentially a universal loyalty card. 1. A customer sets up a PAYBACK PAY account, which It provides customers with an average rebate of 1% in the links to their bank account. form of points that they can redeem for various offers on the PAYBACK website. 2. The customer then goes to a participating merchant and uses the PAYBACK PAY app to purchase items. The next logical step for a company like PAYBACK, with such a dominating market share—today, PAYBACK has 3. Paymorrow supplies the payment to the merchant and over 29 million active customers in Germany alone— takes on the risk of the customer not being able to pay. was to develop an app; in 2010, it launched the PAYBACK This shift in payment behavior and processing couldn’t app, allowing users to activate coupons and collect extra have come at a better time, as Alipay launched in Germany points at partnering retailers. In 2016, PAYBACK took earlier this year. the app a step further and, with the help of InterCard and Paymorrow (both powered by Verifone), it provided pay-by- Suddenly, a country that was behind the times for payment app functionality via a QR code presented to the merchant innovation has leapt into the not-too-distant future. Should at checkout. The newly relaunched PAYBACK PAY app gave this system grow, the German people may have no use for more value to consumers by combining points collection, cards or cash at all. How this will affect German wallet coupons, and mobile payment for the first time. manufacturing, only time will tell. n

6 Millennial PayMillennial NON-CENTS under the age of 30 arecallingit“LitAF.”under theageof30 encroachment uponthepaymentsspace,people aresomewhatbaffledbythismillennial of 30 While weimaginethatmanypeopleovertheage kind ofbiometricinitiativetoemergeinpayments. Canada, andmostofEurope.The appisthelatest Identity Check) hasrecentlylaunched intheU.S., The Selfie Pay app(officiallycalledMasterCard face. the camerauptoapictureofuser’s security measuretopreventcriminalsfromholding face (selfie-style)andblinkonce—theblinkingisa payment, theysimplyholdthephoneuptotheir When theuserwishestomakea recognition. to sendaselfieprovidebasisforfacial After downloadingtheapp,userisasked to paybyselfie. Let thatsinkinforamoment. MasterCard islaunching anappthatwillallowusers 7

paybook • vol. VI • July 2017 Carbon’s Footprint Expands to Israel

Following a successful in-store pilot program, we recently Long regarded as a country that innovates and announced a commercial rollout of Verifone Carbon in influences technology, Israel has rapidly grown into a Israel. Israeli merchants, who operate in a fast-growing telecommunications hub—a world leader in computer and financial technology ecosystem, required a payment mobile tech. solution that can keep up with the pace. In Carbon, these two shop owners found a solution for “Technology is moving quickly in Israel, and the POS has everything they needed to run their business—specifically, been ready to evolve on a device platform that can deliver a POS that embraces smart technology. “We accept secure services and enhance sales with interactive and supportive payments and offer our customers a unique experience experiences for the consumer,” said Dan Soffer, VP Service, based on their preferences and buying habits,” noted EEMEA and GM of Verifone Israel. “With Verifone Carbon, Hershkovitz. Frishberg likes how detaching the device merchants gain a powerful solution to securely accept all from its base allows her to take the tableside, types of payments and create programs to build customer streamlining payment acceptance away from the counter. loyalty and revenue.” “It conveys prestige,” added Frishberg. “Verifone Carbon is simply everything we need for interacting with customers, whether on its stand or in our hands.”

On the heels of a successful pilot, Carbon is ready to expand its reach in the region. Merchants in Israel can greatly benefit from POS technology that leads to better business efficiency, functionality, and user experiences—not to UgaUga, a pastry and coffee shop in Tel Aviv, participated mention security features like EMV acceptance. in the pilot program, which began on February 6, 2017. The deployment of Verifone Carbon in Israel opens the Owners Ofir Frishberg and Limor Hershkovitz wanted door for launches in other international regions. As the a POS that could accommodate the changes they saw number of countries benefitting from Carbon’s advanced taking place all around them. They needed a device with capabilities grows, the world of connected commerce grows enhanced merchant capabilities, but they also understood with it. n the importance of offering value-added services to their customers. To see Verifone Carbon in action at UgaUga, “We live in a technological world,” said Frishberg. “And I thought it could be very nice if our was also visit: https://tinyurl.com/carbon-ugauga technologically advanced.”